Deal focus: ShawKwei delivers US deal flow

Kyle Shaw’s most recent acquisition in the US, prior to this month, was in the 1990s. He completed the deal that made his name in the same decade: a carve-out of contract electronics manufacturer Flextronics International’s Asian division, where the investment thesis was linked to a relocation of manufacturing from the US to China to take advantage of lower labour costs.

Shaw’s re-engagement with US-based assets – through the purchases of decontamination and waste-reducing technology provider ZymeFlow and beauty packaging maker CTL Packaging USA by ShawKwei & Partners, the private equity firm he founded – demonstrates how the dynamics have shifted.

“Given US-China decoupling, tariffs, and the desire of customers to reorient supply chains out of China, there is an opportunity for manufacturing and industrial services in North America and Europe, he said.

“Labour is more expensive in China than it was 30 years ago, when I bought Flextronics, but the clincher is robotics. I cannot emphasise enough how often I see robotics in factories that we’re interested in. And the pricing has come way down. You can almost get a 12-month payback on robotic equipment, and it will last several years, giving you better quality and consistency.”

The reorganisation of supply chains globally has seen manufacturing move closer to the end customer in certain industries. CTL is a good example. It will become the third part of Icons Beauty Group, a contract design and packaging business that serves colour cosmetics, skincare, and beauty products brands. More than 70% of revenue comes from US-based customers, most of them multinationals.

Hong Kong-headquartered International Cosmetic Suppliers became the anchor asset on the Icons platform in 2020. Australia-based Rauxel was added last year. CTL represented an opportunity to expand the manufacturing footprint into North America – in the knowledge that higher labour costs would be offset by substantial transportation savings and a reduced carbon footprint.

“Instead of shipping millions of units from Asia to the US, we can produce them at our factory in North Carolina. We know how to manufacture in Asia, and we are bringing that expertise back to North America,” said Shaw. “This is fundamental to our investment thesis. We will get a better multiple when we sell these companies than if they were just plain Southeast Asia and China businesses.”

Additional headroom can be worked into pricing where capacity would otherwise have taken place in China and been subject to tariffs on entering the US. Shaw observed that most companies are retaining their existing manufacturing operations in Asia, but new products and programmes are going elsewhere.

Hand in glove

CTL and ZymeFlow were acquired through ShawKwei’s fourth fund, which closed on USD 812m in 2018 and is now about three-quarters deployed across various industrial, manufacturing, and services assets. They fall within the firm’s sweet spot of USD 35m-USD 100m in enterprise value, although ZymeFlow, as a standalone portfolio company rather than a bolt-on, is the larger of the two.

Nevertheless, ZymeFlow was bought with synergies in mind. Three years ago, ShawKwei acquired CR3 Group, a Thailand-headquartered energy engineering services provider active across India, Southeast Asia, and the United Arab Emirates. The company mainly serves oil and gas and chemicals producers, and part of the investment thesis is to expand into low-carbon areas like liquefied natural gas and hydrogen.

Houston-based ZymeFlow essentially enables ShawKwei to have a broader discussion with the same set of petrochemical customers as they address this transition. The company has created decontamination solutions – based on biodegradable chemistries – that are effective and environmentally friendly, helping customers lower costs and reduce facility downtime while meeting sustainability goals.

“ZymeFlow and CR3 go hand in glove. When a facility needs to undergo maintenance, you turn off the reactors, decontaminate the hydrogen sulphide and other cases, and then you do the maintenance. ZymeFlow handles the first step in the process and CR3 handles the second,” Shaw explained.

“Our decarbonisation strategy isn’t just about liquefied natural gas and hydrogen; it also involves making the current hydrocarbon chain more efficient. That is part of what ZymeFlow does.”

If the CTL deal was driven by the need to shift manufacturing from Asia to North America, then ZymeFlow is indicative of how technology is moving in the other direction. Half of the company’s sales are overseas, largely because most of the growth in oil refining and petrochemicals is happening in Asia and the Middle East. Major clients include India’s Reliance Industries and Saudi Arabia’s Saudi Aramco.

However, Shaw does not expect North America’s technology advantage to persist in the long term. India is now home to the world’s largest oil refinery – Reliance’s Jamnagar facility in Gujarat, which occupies nearly as much space as Manhattan – and Petronas and Saudi Aramco are working on a similarly ambitious project in Malaysia called PRefChem.

“Under decarbonisation, we will see the closure of facilities in Europe and then in North America. Asia and the Middle East will be last. Traditionally, the expertise has been in Europe and North America, but now all the big new facilities are being built here. Asia and the Middle East are getting up the curve quickly, and they represent the future of the industry.”

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• Topics
• North America
• Southeast Asia
• Greater China
• Industrials
• Cleantech
• Buyouts
• China
• USA
• ShawKwei & Partners
• manufacturing